An Income Tax Return (ITR) in India is the statutory process by which taxpayers file with the Income Tax Department details of income, deductions, exemptions, and levels of tax for the relevant financial year. It kept a formal record of income earned through various sources like salary, business, profession, property, or capital gains and ensured that the taxes were assessed and properly paid as per the provisions of the Income Tax Act of 1961.
In most cases, filing an ITR is not only a regulatory requirement under applicable situations for an individual or a company having an income above the prescribed limit; it is even considered a wise financial decision. Sometimes those earning below the limit also prefer to file voluntarily for the sake of financial transparency and to avail benefits like claiming a refund, carrying forward losses, or proof of income for loan and visa purposes.
The Income Tax Department specifies different ITR forms for different types of taxpayers, whereby some are for salaried persons, business owners, and professionals, while the rest are applicable to companies. Being prudent in selecting the right form is crucial for due compliance.
Overall, submission of an ITR is not just a compliance requirement; it is an important step towards contribution to the national economy, maintaining financial discipline, and protecting one’s own financial integrity.
What is ITR-1 (SAHAJ)?
The ITR-1 is a basic Income Tax Return filed by residents whose sources of income are complicated and whose total income does not exceed ₹50 lakh in a financial year. The ITR-1 application gives utmost ease. Thus, it becomes a taxpayer-friendly application. It is typically based upon straight income, such as salaries from companies or corporations, pensions, or small services.
Eligibility Criteria for ITR-1 (SAHAJ)
Except for Hindu Undivided Families and businesses, people living in India may submit ITR 1. The taxable person’s whole taxable income is not greater than ₹50 lakh. covers: Salary or Pension Income from one home property only (exclusive of loss or income from more than one home property). Income from other sources, agricultural income up to ₹5,000; interest on savings, fixed deposits, and family pension (other than lottery or horse racing winnings).
Who is Not Eligible to Submit ITR1?
- Nonresident and resident not usually resident (RNOR).
- Persons with earnings over ₹50 lakh.
- One who has income from a business or profession.
- One who has capital gains, more than one home property or foreign income.
- Director of a corporation or shareholder of an unlisted equity.
Essential Benefits of ITR-1
- Simplified Filing: Tailored for individuals with uncomplicated income sources.
- Quick Compliance: Reports income with minimal data, thus conserving time.
- Simple calculations: Perfect for salaried individuals and pensioners with straightforward income.
- Taxpayers are entitled to claim refunds for excess TDS/TCS that has been deducted.
- Proof of income is acceptable for loans, visas, and various financial applications.
- Promotes transparency by fostering financial discipline and precise reporting.
- Convenient Online Filing with Pre-filled Information.
What is ITR-4 (SUGAM)?
Among the several new Income Tax Return formats introduced by the Income Tax Department of India is ITR4, also known as Sugam, for small taxpayers such as individuals, HUFs, or companies other than LLPs opting for presumptive taxation under Sections 44AD, 44ADA, or 44AE of the Income Tax Act. Many self-employed individuals and experts who want to maintain their accounts on an assumed basis, rather than keep complex financial records, use this type of form.
Eligibility for ITR-4 is discussed in the following manner:
Specifically, ITR-4 can be filed by residents, which means individuals, HUFs, and non-LLP companies:
1. Earners of income up to ₹50 lakh per year.
2. Individuals earning income from:
- Business income under Section 44AD or 44AE.
- Professional income under Section 44ADA.
- Salary or pension.
- Income from house property.
- Other sources of income, except lottery winnings and horse racing winnings.
Who is not able to file ITR4?
- Not a resident or nonresident not usually residing (RNOR).
- With revenue exceeding ₹50 Lakhs.
- With capital gains from one house property, foreign income/assets.
- Businesses or occupations not subject to presumptive taxing or having a turnover above the threshold limit.
Benefits of the ITR-4 (Sugam):
- Presumptive taxation allows small businesses and professionals to report income at a fixed rate without the need for extensive record-keeping.
- Decreased compliance: No obligation to maintain books of account under Sections 44AD, 44ADA, or 44AE.
- Minimises the time required for self-employed individuals to file returns.
- Covers multiple income sources, such as salary, property, and presumed business earnings.
- Lessens the audit burden by eliminating the need for tax audits if the conditions for presumptive taxation are satisfied.
- Convenient for small taxpayers with earnings up to ₹50 lakh.
- Encourages entrepreneurship by streamlining tax compliance.
Difference Between ITR-1 and ITR-4
The Income Tax Department in India has provided several options appropriate for several classes of taxpayers depending on their income, geography, and commercial or employment status. Usually, individual taxpayers use ITR1 (Sahaj) and ITR4 (Sugam). Even while both forms are streamlined, they cater to two distinct sets of income levels and taxpayers. Understanding the differences is essential to prevent incorrect submissions, which might lead to penalties, fines, or loss of privileges.
1. Relevance:
- Only residents can file ITR1.
- Residents, Hindu Undivided Families (HUFs), and corporations (not Limited Liability Partnerships) can file ITR4.
2. Income restriction:
- Both forms can be used only in the financial year if the total income is not above ₹50 lakh.
3. Income sources covered:
- Interest, income from a single residential property, and basic income sources like salary or pension comprise ITR1. Additionally, it allows agricultural income of up to ₹5,000.
- ITR4 comprises presumptive business or professional income (Sections 44AD, 44ADA, and 44AE), salary or pension, income from a single residential house property, and others (excluding lottery and racehorses).
4. Business or Professional income:
- Under ITR-1, no reporting of commercial or professional income is permitted.
- ITR-4 is for small professionals and businessmen who utilize presumptive taxation.
5. Capital Gains:
- ITR-1 does not have the facility for reporting income on account of capital gains.
- ITR-4 also does not permit reporting of capital gains.
6. Number of House Properties Allowed:
- ITR-1 allows one house property income.
- ITR-4 also places a limit on income to one house property.
7. Foreign Assets or Foreign Income:
- ITR-1 cannot be filed if the individual has foreign assets, foreign bank accounts, or foreign income.
- ITR-4 cannot be filed if the assessee has such foreign assets or income.
8. Eligible Entities:
- ITR-1 is applicable only for individual taxpayers.
- ITR-4 is available to individuals, HUFs, and companies (not LLPs).
9. Complexity:
- ITR-1 is the least complex return form, applicable for simple salary-based income.
- ITR-4 is marginally detailed as it involves the declaration of presumptive business or professional income.
10. Books of Accounts Requirement:
- ITR-1 requires no books of accounts.
- ITR-4 also does not need books of accounts, but only when presumptive taxation is opted for.
Practical Example
In Case 1 (ITR1), Mr. A makes ₹18 lakh and receives ₹30,000 in interest from his savings account. He has one self-owned house. Because his income is under ₹50 lakh and he has no business income, he must submit ITR1.
Case 2 (ITR4): Mrs. B makes ₹28 lakh a year as a self-employed interior designer. She wishes to take advantage of presumptive taxation under Section 44ADA by declaring 50% of her entire income as assessable income instead of maintaining precise accounting records. Furthermore, earning ₹5 lakh is from renting out one property. She therefore needs ITR4.
The sort of income would be the decisive factor in whether to use ITR1 or ITR4. Salaried people, as well as those with simple sources of income, will be ITR1; ITR4 will be for small business owners, experts, and tax assessees subject to presumptive taxation. Proper ITR filing speeds up processing, lowers the chances of alerts, and raises taxpayer compliance. Therefore, before choosing a tax return form, the taxpayers have to think about their sources of income.
Conclusion
Though they are both return forms somewhat simplified in nature, ITR1 (Sahaj) and ITR4 (Sugam) are designed for quite different kinds of taxpayers. For salaried people, retirees, and those with basic income arrangements, one home property and almost no other income, ITR 1 is more appropriate. The format is ideal for those taxpayers whose income does not exceed ₹50 lakh and for whom there is no professional or commercial income.
Under Sections 44AD, 44ADA, or 44AE, ITR4 is dispatched to individuals, professionals, small business owners, and organisations (but not LLPs). It streamlines compliance for individuals who would want to declare their income at a set rate instead of keeping extensive financial records. It only applies to circumstances where the combined income does not exceed ₹50 lakh.
Therefore, the primary distinction is between kinds of income: ITR 1 for income taken to be from commercial or professional activity, and ITR4 for income obtained from employment. Using the correct form helps to provide tax reports that are accurate, simplify processing, and avoid legal issues. Taxpayers should first choose one approach over the other depending on their source of revenue, since correct compliance not only is legal but also guarantees financial integrity and alertness.
